The 2025 federal retiree cost-of-living adjustment (COLA) will be 2.5 percent for those under the Civil Service Retirement System (CSRS) and 2.0 percent for those under the Federal Employees Retirement System (FERS).
This is smaller than the 2024 COLA, which was 3.2 percent for CSRS retirees and 2.2 percent for those under the FERS retirement system.
READ: Federal Retiree COLA History
The 2.5 percent 2025 COLA will also be issued to those receiving Social Security benefits. Beneficiaries will see the new COLA increases in January 2025.
Social Security said it will begin notifying people about their new benefit amount starting in early December. Individuals who have a personal my Social Security account can view their COLA notice online. Social Security beneficiaries will receive a newly designed and improved COLA notice that makes it easier for customers to find the information. The simplified COLA notice is now only one page, uses plain and personalized language, and provides exact dates and dollar amounts of a person’s new benefit amount and any deductions.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) is slated to increase to $176,100 from $168,600.
The announcement of the 2025 COLA follows the release today of the September inflation numbers.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.2 percent over the last 12 months to an index level of 309.046 (1982-84=100), according to the Bureau of Labor Statistics (BLS). For the month of September, the index increased 0.1 percent prior to seasonal adjustment.
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index (CPI-W) as determined by the Department of Labor’s Bureau of Labor Statistics (BLS).
The Consumer Price Index for October 2024 is scheduled to be released on November 13.
How is the difference between the CSRS COLA and FERS COLA determined?
The following table summarizes the FERS COLA in relation to the CSRS COLA:
How is a COLA calculated?
SEE ALSO: Guide to Federal Retiree COLAs: What Are They and How Are They Calculated?
The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA.
What is the difference between the CPI-U and the CPI-W?
The BLS describes it this way:
The CPI-U is a more general index and seeks to track retail prices as they affect all urban consumers. It encompasses about 87 percent of the United States’ population.
The CPI-W is a more specialized index and seeks to track retail prices as they affect urban hourly wage earners and clerical workers. It encompasses about 32 percent of the United States’ population and is a subset of the CPI-U group.
The CPI-W places a slightly higher weight on food, apparel, transportation, and other goods and services. It places a slightly lower weight on housing, medical care, and recreation.
UPDATE: 2025 Federal Retiree COLA Watch – FERS / CSRS / Social Security – October 10, 2024
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.2 percent over the last 12 months to an index level of 309.046 (1982-84=100), according to the Bureau of Labor Statistics (BLS).
For the month of September, the index increased 0.1 percent prior to seasonal adjustment.
READ ALSO: Senate Bill Would Increase COLA for Many Federal Retirees
Trend For Estimated 2025 COLA
(FERS / CSRS / Social Security)
How was this 2025 COLA estimate calculated?
Each year’s COLA is determined by comparing the change in the CPI-W from year to year, based on the average of the third-quarter months of July, August and September. The baseline CPI-W for the last fiscal year is 301.236.
According to the BLS, the CPI-W is the current index used for measuring increases in the prices of consumer goods, including food and beverages, housing, clothing, transportation, medical care, recreation, education, communication, and more.
The amount of a COLA is determined by the percent change in the base quarter price index from the previous year to the year in which the COLA is to become effective (the final number is adjusted to nearest 1/10 of 1 percent).
As of September. 2024, the trend toward a 2025 COLA is:
( 309.046 – 301.236 / 301.236 x 100 = 2.592 (adjusted to the nearest 1/10 of 1 percent = 2.6%)
The Consumer Price Index for Oct. 2024 is scheduled to be released on Nov. 23, 2024.
The official 2025 COLA will be released by the Social Security Administration (SSA) in mid-October 2024. The SSA will calculate the percent change between average prices in the third quarter of the current year (ending on Sept. 30) with the third quarter of the previous year.